On September 12, ISDA and the Institute of International Finance (IIF) submitted a joint response to the Prudential Regulation Authority’s (PRA) consultation on adjustments to the market risk capital framework (CP 17/25).
ISDA and the IIF strongly believe the market risk capital framework should be risk-appropriate and as consistent as possible across jurisdictions to ensure a level playing field without competitive distortions due to divergent rules. While our membership agrees with the proposed delay to the FRTB internal models approach, which allows more time to consider issues with internal models, there are some significant operational costs to operate a dual system of the FRTB standardized approach (FRTB-SA) and the current (Basel 2.5) internal models. Members of ISDA and the IIF would like to see more flexibility, with an opt-out mechanism allowing banks to fully continue with their existing models or to fully transition to FRTB-SA at the start of 2027. This would reduce operational complexity and align with the PRA’s objective of implementing the Basel 3.1 framework.
The proposed changes to the treatment of funds (collective investment undertaking) and the residual risk add-on are steps in the right direction in addressing FRTB-SA implementation issues, but further adjustments are needed.
The response also includes further recommendations beyond the PRA’s proposed changes, which have been long-standing advocacy items and remain critical to achieve a more risk-sensitive FRTB, reduce the operational complexity of the framework and encourage wider adoption of internal models.
Finally, it is essential for the Basel Committee to thoroughly examine inconsistencies in implementation across jurisdictions.
Documents (1) for ISDA, IIF Respond to PRA on Adjustments to Basel 3.1 Market Risk Framework
Latest
Transition to Mandatory Central Clearing
US Treasury securities sit at the heart of global financial markets and serve as one of the primary forms of high-quality collateral across derivatives and securities financing markets. The transition to mandatory central clearing of US Treasuries therefore has implications...
ISDA Publishes Updated ISDA SIMM Governance
ISDA has published an updated version of the ISDA SIMM® Governance Framework, which sets out the principles under which the ISDA Standard Initial Margin Model® operates and the process through which it will be reviewed and amended on a consistent...
ISDA Response to PRA IMA Consultation
On September 18, ISDA, the Association for Financial Markets in Europe, the Institute of International Finance and UK Finance submitted a joint response to the UK Prudential Regulation Authority consultation on adjustments to the internal model approach (IMA) for the...
Calibration Test – IQ September 2026
Calibrating capital requirements is a highly complex undertaking and getting it wrong can have serious consequences. Too much lenience might lead to banks holding insufficient capital to mitigate their risks. But excess conservatism can put balance sheets under strain, forcing...